Archive for February, 2012

It seems to be a US vs Euro blogposts day. I covered a paper from Fernando Nechio which looked at one size fit monetary policy for Europe. The paper divided the EMU countries into EMU-core and EMU-periphery and showed how ECB’s one size fit policy was tight for EMU-periphery.

In a new paper Fernando Nechio along with Israel Malkin look at US this time. Just like Europe, US is made of different states/regions and it is a strong chance that some are doing better than the rest. But Fed makes policy for the country as a whole. So, are there problems just like we see in Europe??

In this paper, instead of looking at 50 states, authors divided US into four regions and calculate the Taylor rule for the five regions.

They say the rebound of GDP from the current recession is broadly the same. So this is deceivingly similar. However, what is strikingly different is productivity has also rebounded but this is not the case for Europe. So there are two puzzles here:

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I posted about how Indian government is trying to sensitize children towards wasting food.

Now it takes a step further. It had earlier also specified that people waste too much food at weddings and social functions. This needs to be curbed. They have done a study along with Centre for Consumer Studies at Indian Institute of Public Administration (not yet public) on the initiative.

Financial economists say one of the golden rules for building a sound portfolio is to diversify your holdings. So one could diversify portfolio across asset classes (bonds vs equities), across similar assets (within equities different companies in different sectors) and regionally (domestic vs international).

The recent crisis has poked a lot of holes in economic theory. If not holes then has certainly questioned many things in the crisis.

Karen Lewis a fellow at Dallas Fed says US investors need to rethink on global diversification of portfolio. The main idea behind global diversity is shares of foreign companies will move differently from US companies. So if US companies do badly, international companies can save the portfolio and vice-versa. This helps lower volatility of portfolio as well.

Just five years ago, macroeconomists talked about a new synthesis, bringing together Keynesian and Classical ideas in a unified, microfounded theoretical framework. Following the Great Recession, it appears that mainstream macroeconomics has once again split into schools of thought. This column explains why macroeconomics, unlike microeconomics, periodically fragments in this way.

I am not going into how the recession has led to return of debate over macro schools.

Both US and Eu have imposed steep sanctions on Iran. US has even said that either you trade with us or trade with Iran. This has led to concerns over world economy as Iran happens to be a major oil supplier. Sanction on Iran could disrupt oil supplies from Iran and higher oil prices. This could threaten recovery of world economy for the umpteenth time since the crisis broke out.

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Daron Acemoglu and James Robinson have written a book called Why Nations Fail. He discusses the upcoming book in the interview here. The book is sure to become a bestseller when it releases on 20 Mar 2012.

The duo have started blogging bringing some key examples/insights from their work.

There have already been two superb posts on why Uzbekistan fails as a nation. It has high education enrollment and literacy rates. But fails as it has some really sad extractive institutions.

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Jeff Chelsky has this nice insight on why capital account liberalization (CAL) took place in developed economies. Most of us think it was economics but Chelsky points there were some interesting political economic reasons as well.

The global crisis has plunged the economic profession into a state of anxiety, at least in some quarters. One question, among many, is whether the way economics is taught at universities needs to be rethought. This column summarises the range of views raised at a recent conference on this issue organised by the British government, the Bank of England, and the Royal Economic Society.

Not discussing the article as short of time…all I can say is exciting times ahead for wannabe econs..

In 2008, the Nobel Prize was awarded to Paul Krugman for research showing „the effects of economies of scale on trade patterns and on the location of economic activity‟ (Royal Swedish Academy of Sciences, 2008). We might wish him a speedy return to his profession.

He says this at the end. The start of the paper deals with how first Keynes got recession economics wrong. And this has been further advocadte really strongly.

Steele picks up key thoughts from General Theory and how Krugman has worked on them. But it is all wrong as govt intervention just worsens the price signals. Sample this:

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Given how important the role of politics is emerging in this crisis, we might again see economics depts being renamed as department of political economy (this blog also hopes this happens).

Some economists have criticised how governments have led to the crisis (John Taylor), others have argued how governments have been too meek to resolve the crisis (Paul Krugman) and some more have argued how lesser government is way out of the crisis (Alberto Alesina).

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Every year, IMF releases its quarterly magazine Finance and Development. Apart from a broad theme, there is a section called Back to Basics which looks at some key economic issues/concepts. IMF has just put up a link where all the previous back to basics columns have been listed.

In Dec-11 edition, back to basics discussed this topic –What is econometrics? It is written by Sam Ouliaris.

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Well we are in interesting times for sure. If developed economies need to get lessons from Latin American economies on crisis management, the world has indeed changed. Barring some concerns from Argentina, most of LatAm has stood pretty strong in this crisis.

Guillermo Ortiz (ex-Governor of Bank of Mexico and now Chairman, Grupo Financiero Banorte) gives this interesting speech on the topic.

CSO plans to take around 210 students this year in various stats related fields.

The Central Statistics Office in the Ministry of Statistics and Programme Implementation announces the scheme of summer internship for post-graduate/research students of recognized universities/institutes during 2012-13. A total number of 210 interns are proposed to be selected during the year i.e. 2012-13. The broad fields/disciplines for interns include National Accounts, Economic Statistics (Including Index Numbers), Social Statistics, Field Surveys, Price Statistics, Official Statistical System and Software Development. The aim and scope, eligibility, duration, expected output from interns; remuneration and procedure for selection etc. are given in the enclosed scheme for internship. Interested and eligible candidates may send their applications in the prescribed format to concerned Officers as per the details given in the enclosed scheme document

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Michael Ehrmann and David-Jan Jansen of ECB look at the 2010 football world cup and assess its impact on trading in equity markets.

They find that during matches the trading (both in number of transactions and total volumes declines).

Every four years, 32 national soccer teams compete in the World Cup. This tournament, which is organised by the world soccer association FIFA, attracts attention from millions of fans across the globe. During the 2010 edition in South Africa, many matches were played during stock market trading hours. This presents us with a natural experiment to analyze possible fluctuations in investor attention.

The paper presents three key findings. First, we find strong evidence of decreased activity in stock markets during soccer matches at the 2010 World Cup. Trading activity dropped markedly, especially if the national team was one of the competitors. Compared to normal market circumstances, the median number of trades dropped by 45% if the national team was playing, while the volume dropped by around 55%. Second, we show how goals scored by either team led to an even stronger decline in the number of trades and offered quotes. Also, we find that market activity was already significantly below the benchmark right before the match started, and continued to be lower during the 45 minutes after the match had ended. Third, we show that also price formation was affected during the soccer matches, as the evolution of returns on national markets decoupled from those on global markets.

In the light of this, we conclude that markets were following developments on the soccer pitch rather than in thetrading pit, leading to a changed price formation process.

An interesting event study on investor inattention. In India, am sure trading and other activity dropped during recent world cup victory by India. Though going by recent performances of Indian cricket team, people are likely to work more in order to avoid getting distracted from the pathetic performance of their team.